This class action concerns yet another initial coin offering (ICO), this time for a cryptocurrency called the Cloud token, sold by Cloud With Me Ltd. The complaint claims that the ICO was actually the sale of unregistered securities, in violation of the Securities Act of 1933.
The class for this action is all individuals and entities who transferred to Cloud any virtual or fiat currency to invest in the Cloud ICO.
The complaint claims that the primary stated purpose of the Cloud ICO was “to fund the creation of a decentralized ‘cloud’ network in which millions of users could become part of a decentralized grid by sharing resources on their personal computing devices for others to use”—a Crowd Cloud.
A white paper released on the subject is quoted by the complaint as saying that Cloud tokens would be “the standard currency for the emergent decentralized cloud services ecosystem, governing contribution-based pro-rata payment, clearing and distribution of financial benefits to the new role players of the Crowd Cloud.”
In time, the tokens, being the standard currency for this system, were expected to rise in value. Buyers of the tokens were told they could receive Cloud tokens by renting out their personal computing resources or trading the tokens on virtual currency exchanges.
According to the complaint, the ICO began on July 25, 2017 and is ongoing as of the filing of the complaint, and it has raised at least $10 million in Bitcoin, Ethereum, and other currencies.
The ICO constitutes an offer and sale of securites, the complaint says, because investors (1) invested money, (2) into a common enterprise, (3) with the expectation of receiving Cloud tokens which were expected to increase in value and produce substantial returns. In fact, the complaint says that token purchasers were frequently called “investors.” Similar to stockholders buying into an initial public offering, they were told they would have certain rights related to the underlying venture, such as profits, shares of assets, the use of certain services, or voting rights.
However, the complaint says that “Defendants have been unsuccessful in creating the Crowd Cloud they promised” and that the tokens have not generated any value.
The complaint points to an SEC report issued on July 25, 2017 on another token seller that warns those using “distributed ledger or blockchain-enabled means for capital raising, to take appropriate steps to ensure compliance” with securities laws.
According to the complaint, the SEC has already filed a complaint against at least one company for its sale of tokens, shut down another ICO, and initiated at least three other actions against those running ICOs. The complaint alleges that Cloud With Me has violated Sections 12 and 15 of the Securities Act of 1933.